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England and Wales Court of Appeal (Civil Division) Decisions


You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Harrods Ltd v Harrods (Buenos Aires) Ltd & Anor [1998] EWCA Civ 874 (21 May 1998)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/1998/874.html
Cite as: [1998] EWCA Civ 874

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IN THE SUPREME COURT OF JUDICATURE CHANF 97/0682/3
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(Mr Justice Neuberger)
Royal Courts of Justice
Strand, London WC2

Thursday, 21st May 1998


B e f o r e :


LORD JUSTICE NOURSE
LORD JUSTICE POTTER and
LORD JUSTICE MUMMERY

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HARRODS LIMITED Plaintiff/Appellant


-v-


(1) HARRODS (BUENOS AIRES) LTD
(2) HARRODS (SOUTH AMERICA) LTD
Defendants/Respondents

--------------


Handed Down Judgment
Smith Bernal Reporting Limited
180 Fleet Street London EC4A 2HD
Tel: 0171 421 4040 Fax: 0171 831 8838
(Official Shorthand Writers to the Court)

---------------

MR C SPARROW QC and MR D ALEXANDER (instructed by Messrs Hammond Suddards, London EC2) appeared on behalf of the Appellant Plaintiff.
MR J BALDWIN QC and MR J MELLOR (instructed by Messrs Frere Cholmeley Bischoff, London EC4) appeared on behalf of the Respondent Defendants.

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J U D G M E N T
(As Approved by the Court)

Crown Copyright
Thursday, 21st May 1998


LORD JUSTICE NOURSE:

On 15th January 1997, in a judgment reserved after a trial extending over some 12 days, Mr Justice Neuberger dismissed an action brought by Harrods Ltd as plaintiff against Harrods (Buenos Aires) Ltd ("HBAL") and Harrods (South America) Ltd ("HSAL") as defendants, save in regard to the plaintiff's claims for passing off (which were not before him). The other principal forms of relief sought in the action were an injunction restraining the use of the name Harrods in breach of contract or fiduciary duty, a declaration that HBAL holds the benefit of all registered trademarks incorporating the name Harrods on trust for the plaintiff, an injunction restraining the assignment or licensing of the use of such trademarks and damages for breach of contract and breach of fiduciary duty. The plaintiff has appealed against the judge's rejection of those claims. By an order made subsequently, the plaintiff was granted leave (on terms) to withdraw the claims for passing off. It now makes its case on two bases: implied contract and fiduciary relationship.

Mr Justice Neuberger's judgment is reported at [1997] FSR 420. All references to pages in the judgment are references to the pages in that report. At p. 425, having said that the case concerned the extent of the defendants' right to use the name Harrods in connection with their business, the judge explained that he was primarily concerned with the plaintiff's claims based on events which occurred in 1911 to 1914. He added that events which had occurred subsequently were also relevant for two reasons: first, because they threw light on what the parties may have agreed or intended during the period 1911 to 1914; secondly, because they were relevant to the defendants' contention that the plaintiff had lost the ability to enforce some or all of such rights (if any) as it would otherwise have had. Accordingly, between pp. 425 and 438, the judge gave a detailed account of the relationship between the plaintiff, HSAL and HBAL during the period 1911 to 1994.

The judge's findings and his statement of the facts not having been criticised in any significant respect, I adopt them in their entirety. Being of the opinion that the outcome of the appeal depends only on a correct interpretation of the events which occurred between 1911 and 1914, I will start by stating the more important facts relating to that period. I can do so mainly in the judge's own words.

(1) The plaintiff is the proprietor of the very well known department store, Harrods, whose business was founded in 1849. By the beginning of this century, when its emporium in Knightsbridge was built, it was the largest department store in London. It had an export and shipping department and held itself out as prepared to ship goods to virtually every country in the world.
(2) By 1911 Argentina was a country with a buoyant economy. A large number of its inhabitants were immigrants or children of immigrants. While those of British extraction were comparatively few in number, they were generally rich and influential. Buenos Aires was a city of over a million people and the largest in South America.
(3) The minutes of a meeting of the plaintiff's board on 8th November 1911 record:

"The possibility of the Company doing business in Buenos Aires was considered, and it was resolved to obtain further particulars as to establishing an Agency there."
(4) Leasehold premises on Calle Florida in Buenos Aires having been acquired by the plaintiff, on 21st February 1912 HSAL was incorporated in England as a private company with an authorised share capital of £25,000. Its main object, as expressed in its memorandum of association, was:

"To carry on in the Argentine Republic and elsewhere in South America, the business of a Universal Supply Company and General Stores in all its branches, and to buy, sell, manufacture and deal in all kinds of goods."
(5) At the plaintiff's annual general meeting on 29th February 1912, the chairman, Sir Alfred Newton, having referred to the registration of "a South American Harrods with a capital of £25,000", said:

"We have been absolutely compelled - the attractions have been so great - to enter the Argentine market. We have felt, we were considering the welfare and progress of this company by carrying on business in South America, and we have established a branch at Buenos Aires."
(6) At meetings of the plaintiff's board held on 2nd April and 22nd October 1912 respectively it was resolved that the plaintiff should apply for 4,992 and 20,000 ordinary shares of £1 each in HSAL. The directors of HSAL were all directors of the plaintiff. Thus the plaintiff had complete ownership and control of HSAL and its business. On 20th June 1912 the Argentine government issued a decree permitting the plaintiff to establish a branch or agency of its business in Argentina.
(7) On 26th August 1912 the store in Calle Florida opened for trading under the name Harrods. It was advertised in the Buenos Aires press as "the branch of the world famous Harrods of London".
(8) In 1913 the plaintiff resolved to expand the Buenos Aires store and in July of that year it lent an additional £12,500 to HSAL. However, because some of the plaintiff's shareholders were concerned about the riskiness of a venture in Argentina, it was decided that the business should thenceforth be carried on by a new independent company (HBAL) which would acquire all the shares in HSAL. It was also proposed that the plaintiff would act as HBAL's buying agent, for which it would receive a commission.
(9) On 12th September 1913 the plaintiff gave its written consent to HBAL's being registered under that name at the Companies Registry.
(10) On 17th September 1913 HBAL was incorporated in England with an authorised share capital of £1,512,000. Its main object, as expressed in its memorandum of association, was:

"To carry on in Buenos Aires in the Argentine Republic and elsewhere in South America the business of a Universal Supply Company and general stores in all its branches, and to buy, sell, manufacture and deal in all kinds of goods."
Sir Alfred Newton, already the chairman of the plaintiff and HSAL, became chairman of HBAL as well. Except for one, who was the plaintiff's general manager, the directors of HBAL were all directors of the plaintiff.
(11) At the first board meeting of HBAL held on 17th September 1913 it was resolved that a number of contracts all dated the following day should be signed and sealed, including
(a) a contract between HSAL and HBAL for the transfer to HBAL of the benefits and obligations of certain contracts relating to the Buenos Aires business and expenses in connection therewith and (b) a contract between the plaintiff and HBAL for the sale to HBAL of 25,000 shares of £1 each in HSAL for the sum of £25,000. It was also resolved that a prospectus dated 19th September 1913 should be issued and advertised. The contracts were duly completed.
(12) On 19th September 1913 the prospectus was duly issued
to the public for subscription for shares in HBAL. On its first page it stated that HBAL had been formed for the purposes mentioned in its memorandum of association (which were later set out) "and principally for the purpose of carrying on under the auspices of Harrod's Stores, Limited, the business of General Stores in Buenos Aires"; also for the purpose of acquiring further land and the whole of the share capital, £25,000, of HSAL. It further stated that it was intended to transfer the business to the new premises. The prospectus was issued for the purpose of receiving subscriptions from the public for 600,000 cumulative preference shares of £1 each, 600,000 ordinary shares of £1 each and 240,000 deferred shares of 1s. each in HBAL. The plaintiff was allotted 54,000 deferred shares at par and a further 6,000 deferred shares (also at par) for its employees.
(13) At the plaintiff's annual general meeting on 27th February 1914 Sir Alfred Newton said this about the Buenos Aires business:

"When [HBAL] was formed, entirely outside Harrod's province, the promoters were naturally anxious to have the advantage of our experience in Buenos Aires, because, as you know, we established on a small scale a shop in Buenos Aires in order to feel our way. They were naturally anxious to have the full advantage accruing from association with Harrod's company. We said, "On terms we are quite prepared for that. On condition that Harrods's do not risk one farthing, we will lend you the benefit of our experience there and the enormous advantage, undoubtedly, of our name, for which we must be paid". We agreed, therefore, to sell or transfer the company we had formed in Buenos Aires to them - a small company of £25,000 - and to enter into a contract with them whereby we should be their buying agents, and generally render them considerable assistance, for which - without, mind you, risking one farthing of capital - we obtained 54,000 of their Deferred shares. At a modest estimate I suppose those 54,000 Deferred shares are at the present moment worth £30,000. That, I think, is a substantial bonus, and, in addition, as I say, we act as buying agents for that company, which undoubtedly will be a company working on very extensive lines and, as far as we can see, one which will be of very great use to us."
(14) On 9th March 1914 a further prospectus in similar form was issued, pursuant to which a further 300,000 £1 shares in HBAL were allotted. Some of the money raised pursuant to the two prospectuses was used to acquire the further land and to rebuild a larger and more prestigious store, which was so designed as to be very reminiscent of the London store. The ground and first floors of the new store were opened on 31st March 1914, and the second, third and fourth floors on 12th September of that year. The advertising material included reference to the Buenos Aires store "receiving the commodities for which Harrods is famous the world over" and that the "reputation of Harrods precedes" the opening.
(15) The arrangement between the plaintiff and HBAL for the appointment of the plaintiff as HBAL's buying agent (on a non-exclusive basis) was duly put into effect. The plaintiff initially received commission at the rate of 2½ per cent, increased to 4 per cent in 1916.

Between pp. 438 and 442, the judge considered the evidence as to the plaintiff's reputation in Argentina in 1912/1913 and the nature and extent of its business in that country at that time. He found that the London store and consequently the name Harrods had a high reputation among a significant number, but not a large proportion, of the better-off people in Buenos Aires, giving it no more than "reputation in the wide sense", based in the main on visits or reports of visits of Argentinians to the London store. He also found that the plaintiff did not carry on business in Argentina to any significant extent and that accordingly it had no, or no measurable, goodwill in Argentina, and therefore no name which could be protected according to the principles laid down in passages which he read from the judgments of Millett LJ in Harrods Ltd v. Harrodian School Ltd [1996] RPC 697, 711 and Oliver LJ in Anheuser-Busch Inc v. Budejovicky Budvar NP [1984] FSR 413, 464. At p. 445, the judge said:

"In those circumstances, while enjoying a "reputation in some wide sense" the plaintiff did not have a sufficient reputation to establish a basis for a passing off action against a third party using the name "Harrods" in Argentina in 1912. That is the conclusion I reach on the basis of the state of the law today, applied to the facts as I find them in 1912/13."

The validity of the plaintiff's claims depends upon a close analysis of the legal relationship between the plaintiff on the one hand and HSAL and HBAL on the other, at the dates at which the latter companies were respectively incorporated. HSAL was incorporated with a name which included the word "Harrods" and with a main object (see (4) above) of carrying on in the Argentine Republic and elsewhere in South America the business of a universal supply company and general stores in all its branches. It traded from its store in Calle Florida under the name Harrods (see (7) above). Being a separate legal entity it could theoretically have carried on business under that name anywhere in South America, and the plaintiff, having been solely responsible for its incorporation, could not have prevented it from doing so. That was the theoretical position. In practice HSAL, being wholly owned and controlled by the plaintiff, would not have done anything of which the plaintiff disapproved.

The position in regard to HBAL was different. HBAL was incorporated with a name which included the word "Harrods" and with a main object (see (10) above) of carrying on in Buenos Aires and elsewhere in South America the business of a universal supply company and general stores in all its branches. It continued the business carried on by HSAL and it did so under the name Harrods. The prospectuses issued in September 1913 and March 1914 stated that HBAL had been formed for the purposes mentioned in its memorandum of association (see (12) and (14) above), and the statements that it had been formed principally for the purpose of carrying on under the auspices of the plaintiff the business of general stores in Buenos Aires in no way detracted from its ability to carry on business under the name Harrods anywhere in South America. The plaintiff, having been solely responsible for HBAL's incorporation, could not have prevented it from doing so. In this case, however, that was not just the theoretical position. In practice, however improbable it might have seemed at the time, the outside shareholders could have removed the board and caused HBAL to act entirely independently of the plaintiff's wishes.

That that was the legal relationship between the plaintiff and HBAL appears to me to be incontrovertible. What is the process of analysis that leads to that conclusion? At this stage I put on one side the plaintiff's case based on fiduciary relationship. That case apart, the primary contention of Mr Sparrow QC, for the plaintiff, was that there was an implied contract between the plaintiff and HBAL which permitted HBAL to carry on business under the name Harrods, but only in Buenos Aires and its environs. For that limitation he relied mainly on HBAL's name and the statements in the prospectuses as to the principal purpose for which it had been formed. The primary contention of Mr Baldwin QC, for the defendants, was that, since the judge found that in 1912/1913 the plaintiff had no, or no measurable, goodwill in Argentina, there could not have been a contract between the plaintiff and HBAL which permitted HBAL to make any use of the name. In my judgment each of these contentions seeks to prove too much and neither is sustainable.

I agree with Mr Sparrow that there was an implied contract between the plaintiff and HBAL which permitted HBAL to carry on business under the name Harrods. That contract was irrevocable. I also agree with Mr Sparrow that the permission was not unlimited. But I do not agree that the limitation was such as has been suggested by him. HBAL was permitted to carry on business under the name Harrods anywhere in South America.

My reasoning is as follows. I start with the express contract between the plaintiff and HBAL for the sale to HBAL of the whole of the issued share capital of HSAL and the contemporaneous transfer of the assets and liabilities of HSAL to HBAL (see (11) above). Both HSAL and HBAL had been brought into the world as creatures of the plaintiff, HBAL with the main object of carrying on business in Buenos Aires and elsewhere in South America. HSAL had carried on business under the name Harrods and it was clearly intended that HBAL should continue to do so. In the circumstances, it must have been an implied term of the express contract between the plaintiff and HBAL that HBAL should be permitted to carry on business under the name Harrods anywhere in South America. That was evidently how the plaintiff's chairman saw it in February 1914 (sc. "we will lend you . . . the enormous advantage, undoubtedly, of our name, for which we must be paid" - see (13) above). Since neither HBAL's name nor the statements in the prospectuses as to the purpose for which it had been principally formed could narrow the ambit of HBAL's main object or restrict its right to use the name, the limitation suggested by Mr Sparrow is misconceived. So too is Mr Baldwin's suggestion that without goodwill there could have been no contract. A may by an irrevocable contract permit B to use his name, though the permission is unnecessary. Once a contract has been made in that simple form A cannot prevent B from using it. That, quite simply, is this case.

The plaintiff's case based on fiduciary relationship is equally unsustainable. That case was considered and rejected by Mr Justice Neuberger between pp. 455 and 458 and I gratefully adopt his reasoning. The circumstances in which HBAL came into being as an independent entity make it quite impossible to imply or construct some fiduciary relationship between it and the plaintiff. Its independence was not just a legal fiction or convenience. It was a commercial necessity. As the plaintiff's chairman said at its annual general meeting in February 1914 (see (13) above), HBAL was formed, entirely outside the plaintiff's province, so that, apart from the 60,000 deferred shares allotted to it for itself and its employees (see (12) above), for which it subscribed no more than £3,000, it would not "risk one farthing" in the South American venture. The reality of HBAL's legal and commercial independence from the plaintiff was confirmed by the plaintiff's appointment as HBAL's non-exclusive buying agent on terms that the plaintiff would receive a specified commission (see (15) above).

Mr Sparrow made much of the descriptions of the Buenos Aires store as a "branch" of the plaintiff and of HBAL as carrying on business "under the auspices of" the plaintiff (see (5), (7) and (12) above) and the like. Points such as those were satisfactorily disposed of by the judge at p. 441:

"References to the BA store as a branch of the London store or as "our [the plaintiff's] store" take matters no further during the period of HSAL's trading: the store was owned by HSAL which was a wholly owned subsidiary of the plaintiff. The occasional references to the BA store as a branch of the London store once the BA store was being operated by HBAL are examples of slightly loose language by people who were directors both of HBAL and of the plaintiff, and in any event I do not think they take matters any further."
I entirely agree. Mr Sparrow also relied, equally to no avail, on the chairman's statement that the name Harrods had been "lent" to HBAL (see (13) above). It would have been more accurate to say that it had been sold.

The importance to the plaintiff of its case based on fiduciary relationship is that it is the foundation for its claim that HBAL holds the benefit of all registered trademarks incorporating the name Harrods on trust for it. Such trademarks have been registered not only in Argentina but also in Bolivia, Brazil, Chile, Colombia, Paraguay, Peru, Uruguay, and Venezuela. Some of them are referred to by the judge between pp. 432 and 433. It was the plaintiff's concern as to the use which HBAL might make of the trademarks which was the cause of its bringing this action. Shortly stated, the plaintiff's claim is that HBAL is a constructive trustee of the trademarks for the plaintiff, or at any rate for the plaintiff and itself jointly. That is a proprietary claim which goes further than a claim based simply on fiduciary relationship. Mr Sparrow argued that the basis of the constructive trust was an implied common intention between the plaintiff and HBAL. That claim is just as untenable as any other. You cannot imply an intention which is contrary to the clear intention of the parties that HBAL should be legally and commercially independent of the plaintiff. Except where there may have been a joint application, the trademarks and any rights attaching to them under the local laws became and remain the sole property of HBAL.

For these reasons, I would reject both bases for the plaintiff's case. As I have endeavoured to demonstrate, the legal and commercial relationship between the plaintiff and HBAL was established by 1914. None of the events which occurred thereafter has affected that relationship in any material way. In many respects they have tended to confirm it.

I would dismiss this appeal and with it the plaintiff's action.

LORD JUSTICE POTTER:
I agree.

LORD JUSTICE MUMMERY:
I also agree.

Order: appeal dismissed with costs; action dismissed.


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